Funding the Next Wave of Key Transportation Projects

Increasingly, it is the ability—and willingness—of state and local governments to pay the ongoing cost of operation and maintaining new transportation projects that dictates whether capital will be invested in the infrastructure itself, according to a panel of experts at the ULI Spring Meeting in Houston. “Getting it built is only the first step,” said Mike Parker, an EY principal who consults on large transportation projects.

And the willingness of local governments, or governmental coalitions, to fund ongoing maintenance and operations through dedicated tax instruments can be an indicator of transportation projects that are most needed by the community–and which are most likely to be successful.

Parker noted that federal funds can be used for building highways, transit and other infrastructure, but are not used to cover operations and maintenance. Sales taxes, tax-increment financing or other sources of revenue are needed to cover those ongoing expenses, or the initial capital expenditure on transportation is unlikely to gain government approval.

“That’s not a bad thing,” Coes replied. “No one used to ask about operations and maintenance and if they would have the cash flow to meet that.”

The projects that promise the greatest return on investment for the community, or which reduce risk, say to retail business prospects, are the ones most likely to gain government approval and secure financing from various sources. Christopher A. Coes, managing director of LOCUS, a group that advocates responsible real estate development and investment, said that, to gain favor among local government officials, a project needs to boost economic development, have broad public support, and meet measurable performance benchmarks.

For example, Coes cited the extension of the Washington, D.C., area’s Metro rail service to Tysons Corner, a suburban office and retail hub in northern Virginia, about 15 miles (24 km) outside the city. The $6-billion project required the cooperation of about nearly half a dozen government entities; about one-third of the cost was met through tolls on a nearby toll road. “It was not easy,” Coes noted. But supporters prevailed because the project is necessary to preserve the long-term economic competitiveness of that Virginia suburb.

Coes noted that Tysons’ growth rate in recent years has been eclipsed by growth rates in the heart of Washington, D.C., where the Metro Center subway station handles the convergence of three rail lines. To be attractive to millennials and the companies that seek to hire them, suburbs such as Tysons Corner need to create urban, walkable lifestyles that are well-served by transit.

Noting that not all millennials live in cities, Coes said, “The suburbs are key. How are they going to retrofit to maintain this population that is demanding a set of transportation options that they currently don’t have?”

Panelists also discussed a relatively new tool for adding highway capacity, colloquially termed “Lexus lanes”—privately build toll lanes with congestion-based pricing on or along existing public highways. Built through public/private partnerships, these projects are one of the more politically palatable ways to create new road capacity, Parker said. By drawing off drivers who are willing to pay tolls that rise along with the level of traffic congestion, those lanes also add some capacity to the non-tolled portion of the highway. In addition to adding some capacity to the roads, Parker noted one other public benefit: “It does start to put a price on commuting—on congestion.”

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